Definition of Fiduciary Proposed Rule
February 3, 2011
Page 14

sufficient protection that is needed by service providers to be able to continue to provide
information necessary for plan sponsors to meet their reporting obligations to participants
and in response to reporting requirements. In this respect, the limitation under the
exception for reports on assets that do not have a generally recognized market value is
likely to create significant problems for plan sponsors and service providers. T. Rowe
Price believes that many of the activities that would be treated as fiduciary services under
the proposed definition are purely “ministerial” services and should not be considered
investment advice that results in a service provider to be treated as a plan fiduciary.”?

For example, record keepers provide benefit statements, maintain call centers and provide
web sites for participants to access information about their plan accounts. The account
information that is provided is also used for purposes of making distributions. However,
the asset values are generally not determined or established by the service provider that
provides the information through the channels noted above. Rather, they are derived
from third-party sources. For example, some investment options, such as bank collective
funds, separately managed accounts and other non-registered options may not have a
generally recognized market value because they are not publicly traded but their
underlying investments generally are. In some instances, a record keeper may, as an
accommodation to the plan, provide record keeping and administrative services,
including those noted above, for an asset that does not have a generally recognized
market value. In such instances, the asset may be valued by the investment provider or
another party and supplied to the recordkeeper to display and use as needed. Similarly, if
a plan holds a group annuity contract or other insurance company investment products,
the product provider would have to provide a value to the plan sponsor and record keeper
for informational and distribution purposes including for calculating a required minimum
distribution.

Additionally, an investment option may be valued based on the prices of publicly traded
securities owned by or held in the investment option (e.g., a “fund of funds” that holds
multiple publicly traded mutual funds, or an employer stock fund that holds a cash
component and employer stock). The fund may be maintained for the plan by a record
keeper on a “unitized” basis. The record keeper or some other service provider may
ealculate the value of the units on a daily basis. While these unitized funds do not have
their own generally recognized market value, their value is based solely on the value of
publicly traded securities.

These are just a few examples that illustrate legitimate concerns about the scope of the
Proposed Rule and limitations of the reporting exception. In light of these concerns and
the importance of the affected service to retirement plans, we urge EBSA to modify the
exception at issue by deleting the following language from paragraph (c)(2)(iii): “unless
such report involves assets for which there is not a generally recognized market and
serves as a basis on which a plan may make distributions to plan participants and

** It is understood that a person who performs purely ministerial functions within a framework of “... rules, practices and
procedures” is not a fiduciary. See 29 C.F.R. §2509.75-8, Q&A D-2.


Definition of Fiduciary Proposed Rule
February 3, 2011
Page 5

For example, a typical client newsletter might include a question and answer segment
with a mutual fund manager that offers the manager’s perspective on general market
influences that could be relevant to the fund’s future performance or risks. A plan
sponsor who has a small portion of its defined contribution plan assets in a separate
account managed by T. Rowe Price could decide to invest a portion of the plan’s assets
(that is not managed by T. Rowe Price) in the mutual fund based in part on what the fund
manager had to say in the newsletter. Such a scenario, which would be impossible to
monitor and protect against, could be deemed to meet both parts of the two-part test. In
this respect, it includes an opinion on market influences relevant to an investment and is
made by someone who is an investment adviser under the Advisers Act. Because the
mutual fund at issue is a proprietary product of the adviser, it would also result in a
prohibited transaction under ERISA’s prohibited transaction rules for which we are aware
of no available exemption.

Beyond ensuring that inadvertent prohibited transactions don’t result from any expression
of opinion made in investment newsletters or reported in the press, investment advisers
need to know who is relying on such opinions as fiduciary advice for another important
reason — to ensure that such opinion is fully vetted against the unique circumstances of
the client plan. Thus, the plan sponsor in the above illustration may have found upon
further discussion with its investment professionals that the mutual fund that they
selected for the plan is inappropriate for the plan’s needs in light of the fund’s limited
market segment, redemption policies or other factors not fully considered by the plan
sponsor, It is untenable and contrary to public policy to impose ERISA fiduciary status
on investment advisers who are not in a position to know who is relying on commentary
offered as general guidance but not individualized to the plan or other customer. We urge
EBSA to eliminate the “status” test from the definition. Since this test is largely
duplicative of the Proposed Rule’s fundamental test, dealing with making
recommendations that are individualized to the needs of the plan, an alternative test
focused solely on the status of the service provider is simply not necessary and only
results in significant unintended consequences.

2. Impact on investment adviser affiliates - We are also concerned that the language in

aforementioned sections of the Proposed Rule either is intended to or can be
misinterpreted to mean that a non-fiduciary service provider that makes recommendations
to a plan about plan investments, but does not otherwise meet the substantive
requirements under the second clause of the rule, could still be deemed to have provided
investment advice if it is affiliated with an Investment Adviser. The Proposed Rule
appears to cause the non-fiduciary service provider to be deemed a fiduciary even though
the affiliated investment adviser is not involved in providing the recommendation made
by the service provider with the direct relationship to the plan.

We are concerned that the Proposed Rule treats service providers who are merely
affiliated with an investment adviser to become unintentional plan fiduciaries. As
discussed in the sections that follow in this letter, this status oriented standard will force



Definition of Fiduciary Proposed Rule
February 3, 2011
Page 10

generally offer thousands of mutual funds to select from on their platforms, a plan
sponsor or designated plan fiduciary often expects the platform provider to provide
information and assistance in narrowing the list of available funds.

To assist designated plan fiduciaries in narrowing platform choices, one or more
objective third-party criterion is often used as a tool in which to distinguish investment
options meeting specified criteria from the larger list. For example, a designated plan
fiduciary might ask the platform provider to identify those funds in a specific asset class
that are rated by Morningstar “4 stars” or higher.'’ Similarly, a service provider might
assist a designated plan fiduciary by identifying funds which have beaten their Lipper
ratings for the past 3, 5 and 10 year periods.'¥ Such narrowing is also performed to
identify various factors that might be of particular importance to the designated fiduciary
beyond performance, such as cost, the existence of sales charges, manager tenure, the
availability of institutional classes, etc. The narrowing criterion used is widely accepted
in the retirement plan investment field and its use is not intended by either party to be
fiduciary in nature. It simply is an attempt to use accepted criteria to assist the plan
sponsor and/or designated fiduciaries in narrowing potential options or in reviewing how
existing options are performing.

We are concerned that, absent a clarification of, or modification to, the final rule,
platform providers and other service providers will be forced to take very conservative
and restrictive approaches in order to avoid being unintentionally and unwillingly treated
as fiduciaries and potentially engaging in unintended prohibited transactions. Platform
providers and other service providers will simply have no choice but to stop providing the
assistance and information that plan sponsors and designated fiduciaries need and often
demand.

2. Platform narrowing using third-party expert — In an effort to assist plan fiduciaries in
narrowing the list of potential investment options from a platform with thousands of
available funds, it is becoming common for platform providers to engage independent
third parties to construct a narrowed list of funds available on the service provider's
platform based again on accepted investment evaluation criteria chosen by the third
party, Such a list is intended to be used by plan sponsors as a potential starting point
from which to compare and contrast potential investment alternatives. It is provided
solely as a service to the plan sponsors and is not intended to be focused on the
individualized needs of the plan, The platform provider is expressly excluded under the
engagement from having any input into the criteria used by the third-party expert who is
under no obligation to include proprietary investments of the platform provider or its

"” Momingstar is a company that collects and publishes information about mutual funds and other investments. The Morningstar
Rating for mutual funds is intended to identify how well a fund has balanced return and risk volatility in the past

'S Lipper is a Thomason Reuters Company that supplies mutual fund information, analytical tools, and commentary. All Lipper
ratings are based on an equal — weighted average and represented as a percent for each incusure of three-, five-, and 10-year
periods.


Definition of Fiduciary Proposed Rule
February 3, 2011
Page 7

provider may provide various forms of assistance during the sales process (e.g., providing
a list of comparable funds as investment options) that, absent an exception, could be
treated as investment advice under the Proposed Rule. This may happen in response to
an RFP or in conversations and interviews as a plan sponsor narrows down its choices
among providers. Plan sponsors and other designated fiduciaries generally make final
decisions about their investment options after signing the service agreement with the
provider. This allows them more time to consider their investment choices and to focus
on the specifics of those decisions separately from administration, record keeping and
general services decisions. It would also be unreasonable and overly burdensome for a
plan sponsor to be required to obtain all of the assistance it needs relative to the fund
selection process before the service provider has been hired.

We are also concerned that the activities covered under the sales exception will be based
on the parties, particularly the service provider, being able to identify and demonstrate
when the sales process ends. As illustrated by the examples discussed below, there is no
clear beginning and end date for discussing potential plan investment options. Although
certain decisions in connection with the selection of a plan lineup may be resolved before
or shortly after an agreement is signed, a plan sponsor will expect the assistance and
conversations on plan investments to be a continuous process throughout the relationship
which can last twenty or more years. For example, after a service provider relationship is
established, EBSA may issue guidance relevant to the investment selection of a plan
option, e.g., the selection of default options, that will cause a plan sponsor or other
designated fiduciary to ask questions of the service provider relevant to available
investments. The exception in the Proposed Rule does not appear to extend its coverage
in this situation. As a result, plan sponsors and service providers will be in an awkward
and difficult position with each other. The plan sponsor will expect follow-through and
resolution of investment related issues, but the service provider will be forced to stop
providing help unless it has agreed to serve as a plan fiduciary. In cases where the
service provider makes available proprietary products or products for which it receives
shareholder servicing or 12b-1 fees, it may be precluded altogether by ERISA’s
prohibited transaction rules from having any discussion of such products.

In order to resolve these concerns, we urge EBSA to clarify that the seller’s exception is
intended to cover the advice and recommendations of the seller at any time during a
relationship when a decision is being considered with respect to an unresolved matter,'?
even if an agreement has been signed or decisions have been made by the recipient with
respect to other matters. By adopting the foregoing recommendation in combination with
several others in this letter, e.g. those relating to the platform exception, service
providers will be better able to provide information that plan sponsors and/or designated
fiduciaries need and be responsive to their questions during the course of the relationship.

*® Subject of course to the condition that the service provider specify that it is not intending to be acting as a fiduciary and provides
the disclosures required under 408(bX2).


Definition of Fiduciary Proposed Rule
February 3, 2011
Page 6

such providers to stop providing many services to their plan customers and prospects in
order to avoid becoming an unwilling fiduciary and engaging in unintentional prohibited
transactions. This will put providers who are affiliated with investment advisers at a
competitive disadvantage relative to other service providers and significantly disrupt the
existing price competitive nature of the retirement plan industry.

In order to resolve this issue, we urge EBSA to modify the language in the Proposed Rule
to clarify that merely being affiliated with an investment adviser will not cause a service
provider to be treated as having rendered investment advice, and that such service
provider will only be treated as having rendered investment advice if it meets one of the
other requirements under Section (c)(1)(ii)(D).

B. Seller’s Exception. Under the Proposed Rule, generally, a service provider will not
become a fiduciary with respect to--

“the provision of advice or recommendations if ... such person can
demonstrate that the recipient of the advice knows or, under the
circumstances, reasonably should know, that the person is
providing the advice or making the recommendation in its capacity
as_a purchaser or seller of a security or other property, or as an
agent of, or appraiser for, such_a purchaser or seller, whose
interests are adverse to the interests of the plan or its participants or
beneficiaries, and that the person is not undertaking to provide
impartial investment advice.”!? (Emphasis added.)

EBSA presumably recognized that service providers must be able to sell their products
and services and, therefore, provided an exception for certain sales activities. Although
we commend EBSA for recognizing the need for a sales exception in the Proposed Rule,
we are concerned about potential limitations on the scope and usefulness of the exception
because issues and discussions on certain investment related topics do not present
themselves as pre- and post-sale activities. We are also concerned that the conditions of
the exception would require that all sales activities be cast in a negative light as being
“adverse” to the interests of plan sponsors and participants.

1. Scope of seller’s exception — The sellers exception has reportedly been described by
EBSA representatives as being intended solely as an exception to fiduciary status for pre-
sale activities and is not intended to apply once a service provider relationship is created.
However, many of the conversations and issues related to a plan’s investments may begin
during the sales process without a plan sponsor making any final decisions (e.g., selecting
the exact investment options, or whether and what fund to use as a default option). As
discussed in greater detail below in connection with the platform exception, a service

" 2510.3-21(c)(2)(i).



Definition of Fiduciary Proposed Rule
February 3, 2011
Page 9

T. Rowe Price commends EBSA for recognizing the valuable role that investment
platform providers play in making information and data available to retirement plans and
their fiduciaries by including the investment platform exception. As noted above,
however, we are concerned that the Proposed Rule establishes a broad and very low
threshold for when a service provider becomes a fiduciary and that the exception does not
provide clear and sufficient protection that is needed by investment platform providers to
be able to continue to offer broad investment choices and critical services to plans and
designated fiduciaries.

As EBSA knows, many plan service providers allow plan sponsors to choose their plan’s
investment options from a list of funds that could include thousands of choices. At
various times in the relationship between a plan and a service provider, plan
representatives, including designated plan fiduciaries or other professionals hired by a
plan, may ask the service provider to provide information, tools, education or other
guidance to help narrow down the choice of funds available to the plan. Under the
existing regulatory structure, platform providers and other service providers are able to
respond to these requests and provide plan sponsors and their designated representatives
with valuable assistance in a capacity that is understood by both parties to be non-
fiduciary in nature. While the Proposed Rule allows for the “provision of certain
information and data to assist a plan fiduciary’s selection or monitoring of [sic] plan
investment alternatives,” it does not specify permissible ways of using such “information
and data.” T. Rowe Price believes that, without clear guidance identifying specific
approaches for assisting plan fiduciaries in selecting plan investment options that will not
be considered investment advice under the final rule, investment platform providers and
other service providers will not be able to continue to provide the type of information and
data on investments available on their platforms that plan fiduciaries have come to
expect.

The following is a summary of some of the approaches and tools that have been
developed by investment platform providers in response to plan fiduciaries’ request for
help.

1. Platform narrowing using third-party criteria — Plan sponsors and designated plan
fiduciaries seek information and guidance necessary to assist them in meeting their

fiduciary responsibilities in many ways. Sometimes they seek the advice of investment
managers and consultants under the understanding that such investment manager or
consultant is intended to serve in a fiduciary capacity to the plan. In many other cases,
however, plan sponsors and other designated fiduciaries are only seeking information and
data necessary to help them meet their fiduciary responsibilities to the plan. This is
especially true of plan sponsors and/or designated fiduciaries looking for information and
data to assist them in putting together an investment lineup or replacing a nonperforming
option with one that they believe will perform better. Included among the many sources
from which plan sponsors often seek such information and data are their investment
platform providers. As noted above, given that platform providers like T. Rowe Price


T. ROWE PRICE GROUP, INC. WWW.TROWEPRICE.COM

Submitted Electronically: e-OR/@dol.gov

February 3, 2011

Office of Regulations and Interpretations
Employee Benefits Security Administration
U.S. Department of Labor

200 Constitution Ave., NW

Washington, DC 20210

Re: Definition of Fiduciary Proposed Rule

Ladies and Gentlemen:

T. Rowe Price Group, Inc. (“T. Rowe Price”)! appreciates this opportunity to comment
on the Employee Benefits Security Administration’s (*EBSA”) definition of fiduciary
Proposed Rule (the “Proposed Rule”)? T. Rowe Price supports EBSA’s goal of
ensuring that its regulations issued under the Employee Retirement Income Security Act
of 1974 (“ERISA”) are protective of retirement plans, participants and beneficiaries.
However, we are concerned that the Proposed Rule will have significant unintended
consequences and will significantly disrupt established service practices severely limiting
the ability of plan sponsors and other designated fiduciaries’ to obtain the information
and support that they have come to expect from their service providers. This letter
includes a summary of our concerns regarding the Proposed Rule and suggests certain
modifications.

Additionally, EBSA requested comments regarding distribution counseling services. T.
Rowe Price believes that non-fiduciary distribution counseling services are essential for
ensuring that plan participants understand the distribution options available to them when
leaving an employer and should be preserved. Accordingly, this letter ineludes our views
on that subject.

' T. Rowe Price Group is a financial services holding company that, through its subsidiaries, provides investinent advisory services to

individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investinent pertfulivs. Through its
subsidiary T. Rowe Price Retirement Plan Services, Inc. (“RPS”), it also provides recordkeeping and plan administrative services
to over 1,091 retirement plans, with 1,771,445 plan participants (as of 12/31/ 2010).

75 Fed. Reg, 65263 (Oct. 22, 2010)

For purposes of simplicity, references herein to “plan sponsor" and/or “designated fiduciary” include a plan committee acting on
options. behalf of the plan, plan trusice or other plan liduciary that is designated as being responsible for selecting a plan's
investinent

In promulgating interpretations of ERISA, the U.S. Department of Labor is charged with protecting the interests of retirement plan
and their participants and beneficiaries in a inanner that ensures that “established business practices of financial institutions” in
interacting with employee benefit plans were not disrupted. See ERISA Conference Report, P-L. 93-406, at 309.

T.RoweFrice

INVEST WITH CONFIDENCE


Definition of Fiduciary Proposed Rule
February 3, 2011
Page 12

services offered to the plan.” Additionally, in some cases the platform provider or its
affiliate is recognized in the marketplace as having specific products that are particularly
highly rated or widely touted by consultants and other investment professionals. For
example, a certain fund or family of funds might be identified in the industry press as a
suitable default option. For this reason, it is not uncommon for plan sponsors or their
designated fiduciaries to request the platform provider to identify potential proprietary
products for their consideration in constructing a plan lineup or in replacing a low
performing option. We are concerned that platform providers who have affiliated funds
on their platforms will not be able to structure their products and services as needed to
respond to such requests under the Proposed Rule. Additionally, we note that these same
issues and concerns arise when a plan replaces an investment option. The sales exception
discussed above would presumably not provide protection from fiduciary status in that
situation either.

5. Investment review services - Many platform providers provide periodic reviews to
their plan sponsor clients that are designed to assist plan sponsors in monitoring and
evaluating their plan investment lineups. These reviews can be in person or in writing
and may be provided directly to plan sponsors or may be used by other third-party
professionals (¢.g., consultants and advisors) who have been engaged to assist the plan
sponsor in the performance of the plan sponsor’s fiduciary duties to the plan. These
review sessions often use investment summaries as a too] to assist the plan sponsor in
performing investment monitoring and often include criteria that could be used to
evaluate funds (¢.g., bench marking, historical performance, and fee data). For example,
an investment summary might compare the performance of each of the investment
options available in the plan against their Lipper averages or other criteria that the plan
sponsor or its representative requests or is identified by the service provider. The
approaches used vary but are all based on generally aceepted evaluation criteria. Unless
the service provider intends to, and agrees to, become a fiduciary by providing
investment advice for a plan, the investment summaries and related materials disclose
that they are for educational purposes only and that the service provider is not providing
investment advice and is not a fiduciary. We are concerned that because of the broad
expansion of the fiduciary definition and the potential limited scope of the platform
exception under the Proposed Rule, such investment summaries could not be offered by
service providers without substantially increasing the risk that they can become
involuntary and unintentional fiduciaries. Consequently, absent clarification of, or a
modification to, the Proposed Rule, service providers may be forced to discontinue
making available investment monitoring and evaluation tools to plan sponsors.

In order to ensure that plan sponsors continue to get the help they need in narrowing
potential investment choices, we urge EBSA to clarify or modify the Proposed Rule. In
this respect, the final rule should allow service providers to provide information and data
to a plan sponsor or its designated fiduciaries about plan investment options that is
intended to narrow the options available provided that any such assistance is based on

40 2003-09A (June 25, 2003)


Definition of Fiduciary Proposed Rule
February 3, 2011
Page |1

affiliates in the selected list of funds. Under such circumstances, no public policy interest
is served by imposing fiduciary status of either the platform provider or the independent
third party. Doing so will only result in such useful information being unavailable except
at a substantial fee.

3. Platform narrowing in response to plan parameters ~ When searching for a new

service provider for a plan or during the conversion process, plan sponsors and/or their
designated representatives will ask significant detailed questions about the investment
options offered by prospective providers. They also typically ask service providers to
provide a sample fund lineup for the plan or to identify specific funds from the platform
that are comparable to those that the plan currently uses. The plan fiduciary may provide
parameters for the service provider to consider in making those recommendations, such
as using the plan’s existing funds as a guide or may provide other criteria such as
information from a plan’s investment policy statement. Additionally, the designated plan
fiduciary might inquire about the possibility of liquidating all of the plan assets and
transferring or “mapping” them into a single fund or series of funds (e.g., target date
funds) pending reinvestment in the investment options that will be used under the new
provider’s platform. Prospective providers that do not respond to these requests are
generally eliminated from consideration by the designated plan fiduciary. When
responding to such requests, service providers use available third-party data such as
Morningstar “fund fact sheets” to compare and contrast the plan’s existing lineup and
specified parameters to those investment options available on its platform. A chart is
typically provided to the designated plan fiduciary showing side-by-side the comparative
fund descriptions. The parties understand that the service provider is matching potential
alternative funds based solely on the parameters specified by the designated fiduciary and
comparing the features of potential alternative funds based solely on third-party data. In
all cases, platform providers inform the plan sponsor that the information and assistance
it provides is not intended to be investment advice and that the plan sponsor must make
its own decisions based on its particular facts and circumstances.

The conversations between plan sponsors and their service providers that necessarily take
place during the RFP and conversion process can not avoid discussions about investment
options. While these issues may initially be raised in the RFP and sales process, they
continue in conversations after the plan selects the service provider. Platform and other
service providers are concerned that under the Proposed Rule they will not be able to
provide the assistance and information that plan sponsors need and demand, without
becoming a plan fiduciary. The sales exception does not appear to provide adequate
protection because many of these issues are discussed and resolved after the plan and
service provider have established a formal rclationship.

4. Narrowing by proprietary products—~ EBSA has recognized that inclusion by plans of
the proprietary investment products of the plan’s service provider or its affiliates in the
investment menu of a retirement plan can sometimes impact the pricing of recordkeeping



Definition of Fiduciary Proposed Rule
February 3, 2011
Page 8

2. Seller’s activities as adverse - As noted above, we commend EBSA for recognizing
the need for an exception under the Proposed Rule for the advice or recommendations
that a service provider may provide during the selling process. The language in the
Proposed Rule characterizes every seller and prospective customer relationship as
adverse. We appreciate that the term “adverse” is intended to be used in a technical and
legal sense. However, while it is understood that sellers have a financial interest in the
decisions made by customers, the vast majority of service providers and clients would not
characterize their relationship as adverse in the plain English meaning of the word.
Purchasers of investment products and services, of course, understand and accept that the
provider of the products and services has a financial interest in completing a sale.
However, we are concerned that the Proposed Rule could be interpreted as requiring the
term “adverse” to be used prominently and repeatedly in discussions of products and
services which will cause needless concern for plan sponsors and participants leading to a
general mistrust of service providers.

In order to address our concerns, we urge EBSA to delete the reference to “adverse” from
the exception’s disclosure requirements. T. Rowe Price believes that such a modified
disclosure, combined with the disclosures that a prospect turned customer will receive
from a service provider as required under 408(b)(2) of ERISA, will provide substantial
information and protection for retirement plans, plan sponsors and participants.

C. Investment Platform Exception, The Proposed Rule includes an exception for
investment platform providers that states that a service provider will not be treated as
rendering investment advice as a result of —

“[mJarketing or making available (e.g., through a platform or
similar mechanism), without regard to the individualized needs of
the plan, its participants, or beneficiaries, securities or other
property from which a plan fiduciary may designate investment
alternatives into which plan participants or beneficiaries may direct
the investment of assets held in, or contributed to, their individual
accounts, if the person making available such investments
discloses in writing to the plan fiduciary that the person is not
undertaking to provide impartial investment advice.”'*

The Proposed Rule also specifies that—

“the provision of certain information and data to assist a plan fiduciary’s
selection or monitoring of such plan investment alternatives will not be
treated as rendering investment advice if the person providing such
information or data discloses in writing to the plan fiduciary that the
person is not undertaking to provide impartial investment advice.”!°

S 2510,3-21(c)(2)(4\B).
Sid.


Definition of Fiduciary Proposed Rule
February 3, 2011
Page 4

such person would also have to either (1) directly or indirectly, including through or
together with affiliates, be_an investment adviser under the Investment Advisers Act
(“Advisers Act”),’ or (2) provide advice or make recommendations regarding plan
investments pursuant to an agreement, arrangement or understanding, written or
otherwise, with the plan, a plan fiduciary, or a plan participant or beneficiary that such
advice may be considered in connection with making investment or management
decisions with respect to plan assets, and will be individualized to the needs of the plan, a
plan fiduciary, or a participant or beneficiary.'°

1. Impact_on_normal activities of investment_advisers - We are concerned that the
Proposed Rule treats a person as acting as an ERISA fiduciary for all purposes where a
particular status exists, even if this status is unrelated to the engagement establishing the
relationship between the person and the plan sponsor or other designated fiduciary. In
determining whether someone interacting with a plan or participant is giving advice
under ERISA, the relevant inquiry should be the context of the interaction itself and not
rest solely on the status of the person as an adviser under the Advisers Act or an ERISA
fiduciary for some other reason.

T. Rowe Price serves as investment adviser to numerous ERISA plans and in such
capacity acknowledges its status as an ERISA fiduciary and registered adviser under the
Advisers Act. In performing advisory services under such relationships, T. Rowe Price
understands and takes with the utmost seriousness its obligation to satisfy fiduciary
responsibilities both under ERISA and the Advisers Act with respect to the assets that it
manages. As an established adviser, however, T. Rowe Price also often provides general
investment ~ related information or commentary on matters beyond the scope of its
existing relationship on an impromptu basis, through educational newsletters or client
conferences, or during discussions regarding potential future services. Typically, such
information and commentary is offered to all clients regardless of their status as a
retirement plan or relationship to a retirement plan.'!

As discussed above, under the Proposed Rule, an investment adviser that makes a
recommendation as to the advisability of investing in, purchasing, holding, or selling
securities or other property to a plan or participant would be acting as an ERISA
fiduciary. The recommendation need not be individualized to the needs of the plan or
participant and need not even be aimed at a particular plan or participant. Any
investment newsletter or expression of opinion reported in a newspaper or financial
publication, including those making general statements about classes of investments
would be encompassed by the proposal’s two-part test, even if the commentary is
intended for the adviser’s total client base or the general public without reference or
individualized to a particular retirement plan or participant.

* 2520.3-21(c}(1 Mii).
TM 2510.3-21(e)(1 ai)

* While T. Rowe Price uses appropriate care and the utmost good faith in providing investment and market commentary, itis, of
course, not intending to provide individualized guidance customized to the unique circumstance of a specific client when doing so.



Definition of Fiduciary Proposed Rule
February 3, 2011
Page 15

beneficiaries.” Additionally, we urge EBSA to modify the Proposed Rule to provide that
a service provider shall not be considered a fiduciary as a result of reporting, providing
statements, using, relying on or taking any other necessary action for a plan based on, or
in connection with, the value of any plan assets, including assets that do not have a
generally accepted market value, unless such provider independently establishes or
determines the value of such asset. We also urge EBSA to provide that a service provider
will not become a fiduciary as a result of calculating the value for an investment option
that does not itself have a recognized market value, where the value is otherwise
determined based on the prices of the investment options’ underlying publicly traded
securities.

IL.
Distribution Counseling

In the preamble of the Proposed Rule, EBSA requested comments regarding whether the
final regulations should define the provisions of investment advice to encompass
recommendations related to taking plan distributions. T. Rowe Price supports EBSA’s
efforts to safeguard the interests of participants and beneficiaries in connection with plan
distributions, Participants frequently need assistance and to be educated about the
distribution options available to them (e.g., leave the money in the plan, take a lump sum
distribution, take advantage of certain lifetime income options, or rollover to another plan
or IRA). T. Rowe Price urges EBSA to maintain its current position that distribution
counseling services and recommendations that a person take a distribution are not
investment advice under ERISA.

As noted above, plan participants generally need and demand assistance when deciding
whether or not to take a distribution from a retirement plan and, what type of distribution
to take. These decisions are impacted by many factors, including the alternatives
available under the plan, the circumstances giving rise to a possible distribution (e.g.,
changing jobs, termination, retirement, among others), and personal circumstanees (e.g.,
age and other available assets). EBSA’s position under AO 2005-23A allows a
completely unrelated adviser, who is likely to have a financial interest in recommending
that the participant take a distribution, to discuss these matters and even make specific
recommendations. However, the rules make it harder for service providers with an
established relationship with a plan, including those who are not fiduciaries, to provide
comparable assistance.”°

We recognize and support EBSA’s view that a plan fiduciary should not be able to act in
its own interest and should not be able to influence its own compensation, but the current
regulatory scheme actually makes it harder for service providers who have been
authorized by the plan sponsor or other designated fiduciary to provide distribution

* See DOL AO 2005-23, Question 3 (Dec. 7, 2005),
Sd.


Definition of Fiduciary Proposed Rule
February 3, 2011
Page 3

service providers will be less consequential. We urge EBSA to consider the following
recommendations that can form the basis for a reproposal of the Proposed Rule.

1. Plan service providers and their customers should be able to reach a mutual
understanding as to a service provider’s role and whether a fiduciary relationship is
expected. Service providers should not be subject to significant risk that an
agreement with a plan or plan participants to provide non-fiduciary products and
services is treated, after the fact, as a fiduciary services arrangement.

2. ERISA fiduciary status should not apply to activities engaged in by investment
advisers and their affiliates outside of the relationship for which the adviser has
undertaken to provide investment advisory services for compensation.

3. Requiring a seller of an investment product or service to state that its interests are
“adverse” to those of the buyer only serves to create confusion. An awareness of the
financial interests the seller may have regarding the purchase decision would be more
relevant and, therefore, useful to a prospective buyer.

4, Service providers should be able to provide information and data on investment
options to plan sponsors both during the sales process and on an ongoing basis if the
service provider expressly discloses that it is providing such in a non-fiduciary
capacity as a seller and that it has a financial interest regarding any decisions that the
potential customer may make in connection with the plan and plan assets. 7

5. Ministerial custodial valuations and pricing services should not be considered
fiduciary activities.

T. Rowe Price believes that modifications to the Proposed Rule based on the above
concepts will accomplish EBSA’s goals, continue to protect plans, plan sponsors, plan
participants and beneficiaries and allow sponsors and participants to continue to receive
non-fiduciary products and services they need at a reasonable fee. Our concerns and
additional recommendations regarding specific aspects of the Proposed Rule are
summarized below.

Il.
Specific Concerns

A. Unintentional Fiduciary Status of Certain Investment Adviser Affiliates. The
Proposed Rule provides that a person renders investment advice if such person makes
recommendations as to the advisability of investing in, purchasing, holding or selling
plan investments, and such person meets at least one other requirement.* In this respect,

7 ‘The service provider should disclose in any such agreement and consistent with the regulations under Section 408(b)(2) of ERISA,
the financial interests it may have regarding any decisions that the plan, plan sponsor, plan participant or beneficiary may make in
connection with the plan and plan assets.

* 2510.3-21(cX(1 i AM2), and 2510.3-21(c(1 Mii),



Definition of Fiduciary Proposed Rule
February 3, 2011
Page 2

1.
Introduction

The Proposed Rule expands the definition of a fiduciary under ERISA by redefining
when a service provider renders “investment advice” for a fee within the meaning of
Section 3(21)(A)(i) of ERISA. Under the Proposed Rule, a service provider renders
investment advice, and would be a plan fiduciary, when it “[mJakes recommendations as
to the advisability of investing in, purchasing, holding, or selling securities or other
property, or ... [p]rovides advice or makes recommendations as to the management of
securities or other property” and meets certain other requirements. Under the Proposed
Rule, the service provider would be considered a fiduciary if it provides advice or
recommendations regarding the matters described above--

“pursuant to an agreement, arrangement or understanding, written
or otherwise, between such person and the plan, a plan fiduciary,
or a plan participant or beneficiary that such advice may be
considered in connection with making investment or management
decisions with respect to plan assets, and will be individualized to
the needs of the plan, a plan fiduciary, or a participant or
beneficiary.”®

As noted above, we support EBSA’s efforts to ensure that its regulations issued under
ERISA are protective of retirement plans, participants and beneficiaries. However, we
are concerned that the scope of the Proposed Rule is very broad and the availability and
scope of the exceptions are unclear. As a result, the activities that trigger when a service
provider will be considered a fiduciary would be contrary to the expectations of plan
sponsors and other designated fiduciaries and, in many instances, significantly unclear. It
is critical that service providers are able to structure their products and services with
reasonable certainty about whether they are a fiduciary with respect to a retirement plan
and its participants. Without such certainty, service providers can not reasonably avoid
unintentionally and unwillingly becoming fiduciaries and engaging in prohibited
transactions. Unintentional fiduciary status is a realistic possibility under the Proposed
Rule in connection with advisory relationships, investment platform products and
services, and in many other situations. Most importantly, we are concerned that the
Proposed Rule’s recharacterization of relationships into fiduciary activities will likely
cause service providers to discontinue providing many services that plan sponsors, other
designated fiduciaries and participants demand and will force such persons to obtain the
information and data they need from fiduciary providers requiring that they pay
substantially higher fees.

We urge EBSA to take a more measured and restrained approach in changing the
definition of fiduciary so that the impact on access to markets, investment products and

* 2510.3-24(cX EMiMAX2) & (3)
® 2510,3-21 (IHD).



Definition of Fiduciary Proposed Rule
February 3, 2011
Page 13

“objective third-party criteria” including criteria identified by the service provider,
provided that the service provider discloses that the assistance is not intended to be
advice, that the service provider is not acting in a fiduciary capacity, that the service
provider may have a financial interest regarding the decisions that are made (if
applicable), and that the recipient is ultimately responsible for making the final decision.
“Objective third-party criteria” should be broadly defined to include criteria identified by
the service provider, information from a plan’s investment policy or other information
provided to the service provider by the plan sponsor, and the identity and characteristics
of a plan’s current investment options. Examples of the type of permissible criteria
would be publically available information and data on asset classes, historical
performance, manager tenure, expense ratios and bench marking, among other things.”°

These suggested changes will avoid forcing plan sponsors and their designated fiduciaries
from having to hire a fiduciary for the information and data they need and paying higher
fees for it. It will also allow service providers to provide assistance to their customers
and prospects without substantial risk that they will unwillingly and inadvertently
become plan fiduciaries and engage in prohibited transactions.

D. Financial Information and Reporting Exception. Under the Proposed Rule, a
service provider renders investment advice, and would be a plan fiduciary, when it

“[p]rovides advice or an appraisal or faimess opinion, concerning the value of securities
or other property.””! EBSA recognized that, absent an exception, the noted change would
limit service providers’ ability to provide needed financial information to plan sponsors
and participants and limit service providers’ ability to help plan sponsors meet certain
reporting requirements, including providing participant statements. Accordingly, EBSA
included an exception in the Proposed Rule that states that ‘advice, or appraisal or
fairness opinion” does not include the --

“preparation of a general report or statement that merely reflects
the value of an investment of a plan or a participant or beneficiary,
provided for purposes of compliance with the reporting and
disclosure requirements of the Act, the Internal Revenue Code, and
the regulations, forms and schedules issued thereunder, unless such
report involves assets for which there is not a generally recognized

market_and_serves_as_a_basis_on_ which a plan may make

distributions to _plan_participants and_beneficiaries.””” (Emphasis
added.)

We commend EBSA for recognizing the need for an exception under the Proposed Rule.
However, we are concerned that the proposed exception does not provide clear and

* We note that many of the services and assistance described above are comparable to the non-fiduciary partivipant education
services defined by EBSA in Interpretive Bulletin 96-1 (“IB 96-1").

 510.3-21(cX1XiKA\(E).
® 2510.3-21(c)(2M(ii).


Definition of Fiduciary Proposed Rule
February 3, 2011
Page 16

counseling to provide the needed assistance. The current regulatory environment gives
unknown advisers who may be making “cold calls” to plan participants the ability to
exercise greater influence over their decisions. If plan participants are unable to get the
assistance that they need from plan sponsor representatives and their service providers, it
is more likely that they can be influenced by unknown solicitors when they seek help.
Additionally, we are concerned that a sudden reversal of EBSA’s position, absent
additional guidance, will likely be more harmful to participants who will not be able to
get the assistance they need from plan service providers.

We also urge EBSA to refrain from revising its position on distribution counseling until
the Securities and Exchange Commission (“SEC”) has determined what new rules and
regulations should be adopted and implemented in response to initiatives mandated by the
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Act”). A
recent study submitted by the SEC to Congress in response to the Act recommends a
uniform fiduciary standard of conduct for broker-dealers and investment advisors that is
no less stringent than currently applied to investment advisers under the Advisers Act.7°
The study states that “retail customers should be protected uniformly when receiving
personalized investment advice about securities regardless of whether they choose to
work with an investment adviser or a broker-dealer.” T. Rowe Price believes that this
presents the SEC with an opportunity to develop a uniform fiduciary standard applicable
to all retail investors, including participants seeking to implement a rollover distribution
outside of a plan, and should be considered by EBSA in its analysis of whether additional
protections are needed.

eR OR OR OK

We hope you find the foregoing comments helpful to your review of the Proposed Rule
and its role in protecting the interests of plan sponsors, plan participants and
beneficiaries. If you need additional information or you have questions regarding our
comments, please feel free to contact me at the above number or David Abbey at (410)
345-5724.

Sincerely,

Cynthia Egan

President
T. Rowe Price Retirement Plan Services, Inc.

*© SEC Study of Investment Advisers and Broker-Dealers, As Required by Section 913 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act (January 2011).